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A fund managed by Steve Cohen’s SAC Capital Advisors, a hedge fund manager that is attracting scrutiny from the US Securities and Exchange Commission as part of its ongoing insider trading inquiry, was the most profitable hedge fund in the world last year, according to annual rankings by Bloomberg Markets magazine.

SAC Capital International, Cohen’s long/short equity strategy, tops the ranking of the 20 most profitable hedge funds in the world (see table). The $9bn fund, which was the third most profitable hedge fund in the previous year's rankings, gained 10% in the first 10 months of last year, after 8% in 2011. It brought home $789.5m in profits.

Performance puts it at 86th place in Bloomberg's rankings of the best performing large hedge funds, but SAC was propelled up the profitability rankings by the high fees it charges, with a 3% management fee and performance fees of up to 50%, according to investors.

In November, the SEC told Cohen’s $14bn firm that it was considering suing it for civil fraud related to insider trading, in which former and current employees are alleged to have been involved. According to a Thomson Reuters report at the time, a spokesman for SAC said that Cohen and SAC were confident they have acted appropriately.

European funds are notably absent from the top of the rankings: BlueCrest Capital Management’s BlueCrest International fund is the most profitable European fund on the list, reaching 18th place with profits of $157.3m, according to Bloomberg.

The feature, published in the February edition of Bloomberg Markets magazine, also ranks the 100 top-performing large hedge funds in the first 10 months of 2012, defined as those managing more than $1bn.

Metacapital Management’s mortgage-backed arbitrage fund Metacapital Mortgage Opportunities fund takes the top spot, with a 37.8% gain last year through October.

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Three of the top five funds in the Bloomberg Markets list invested in mortgage securities, the best-performing strategy in 2012, with an average return of 20.2% against an industry average of just 1.3%, according to data compiled by Bloomberg.

In second place is Pine River Fixed Income, another mortgage-backed arbitrage strategy. The fund, which is managed by Pine River Capital Management, was up 32.9% during the 10-month period. Pine River’s Pine River Liquid Mortgage fund takes fourth place.

Two European funds make it into the top five: Michael Hintze’s multi-strategy CQS Directional Opportunities fund is in third place after gaining 28.9% through October, while Crispin Odey’s long/short equity Odey European fund takes fifth place with a gain of 24.1%.

With $81.3bn under management, up from $77.6bn in last year’s survey, Ray Dalio’s Bridgewater Associates remains the largest hedge fund manager in the world, according to Bloomberg’s rankings, beating Man Group, JP Morgan Asset Management and Brevan Howard Asset Management by a comfortable margin. The positions of these four firms are unchanged from last year’s rankings.

Cheyne Total Return Credit 1, a $555m fixed income fund run by London’s Cheyne Capital Management, tops the list of the top 25 mid-sized hedge funds, defined as those managing between $250m and $1bn in assets. The fund, which is run by David Peacock and John Weiss, gained 61.4% in 2012.

While a handful of funds achieved stellar performance last year, these big gains came amid a fourth consecutive year of underperformance by hedge funds. The average return of 1.3% in the first 10 months of last year compared with a 14% gain, including dividends, for the S&P500 Index during the same period. According to Bloomberg, since January 1, 2009, the average hedge fund gained a cumulative 13.5% compared with 69.8% for the S&P500.

For the full article and rankings see the February edition of Bloomberg Markets magazine.